Q4 2021 Limbach Holdings Inc Earnings Call

Greetings welcome to live Bank Holdings' fourth quarter, 2020 one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Please press star one to enter the question queue.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Jeremy Hellman of the equity group. Thank you you may begin.

Thank you very much and good morning, everyone.

Yesterday, Limbach holdings announced its fourth quarter and full year 2021 results and filed its Form 10-K for the fiscal year ended December 31 2021.

During this call the company will be reviewing those results and providing an update on current market conditions. Today's discussion may contain forward looking statements and actual results may differ from any forecast projections or similar statements made during the earnings call listeners are reminded to review the Companys annual report on Form 10-K , and quarterly reports on Form 10-Q for risk factors that may occur.

Cause the actual results to differ from forward looking statements made during the earnings call with that I'll turn the call over to Charlie Bacon, The President and Chief Executive Officer of Limbach Holdings.

Good morning, everyone and thanks for joining US joining me today is our Chief Financial Officer, Jayme Brooks, Our Chief operating Officer, Mike Burton and our acquisition and capital markets Executive Vice President Matthew Cats.

We closed out 2021 with a strong fourth quarter. Despite the ongoing challenges of operating through a pandemic and dealing with acute supply chain issues that are impacting our industry. Our fourth quarter results built on the excellent third quarter, we reported in November and continue to demonstrate the successful execution of the strategy we've laid out.

For our stakeholders over the last two years.

With the year now complete we can report that we met our financial guidance. We presented last may for both consolidated revenue and adjusted EBITDA.

Jamie will discuss our financial results in more detail, but for now I'd like to point out a few financial highlights from the fourth quarter.

<unk> revenue grew by 10, 6% compared to the prior year quarter and audio backlog grew by 92, 5%.

With year on year sales up over 25%.

Or your gross margin was 28, 5% above our model range of 25% to 28%.

G C. Our gross margin was 16, 4% well above our model range of 10 five to 11, 5%.

Our consolidated gross margin was 21%.

Ultimately our focus on growing the audio business, while concurrently rationalizing the TCR business to focus on higher margin work is all about driving bottom line profitability. Our segment results bear this out as TCR segment revenues declined 26% for the full year gross profit improved one.

Approximately $300000.

As we've said previously over the near term, we're prepared to trade lower gcs revenue for higher JCR gross profit dollars and that's what we saw in the fourth quarter.

Fourth quarter net income of $4 3 million set another company record as did adjusted EBITDA of $9 five for the quarter full year adjusted EBITDA was $23 3 million, which fell within guidance, despite being impacted by both supply chain and employee quarantines.

Impact of the pandemic on our employees and their ability to work started improving in February but supply chain issues are persisting and Mike will comment later on our actions to combat the industry wide problem.

Our OTR segment continues to focus on growth and to contribute a larger share of our total revenue helping to prove consolidated gross margin. While also temporary a temporary the overall risk profile of the business.

The <unk> segment also continues to perform with the focus on bottom line profitability delivering the intended results.

I'm extremely proud of everyone's hard work at the company as it directly contributed to the company's success from a craft workers and service technicians to the branch and corporate leadership teams, who delivered on our financial plan and achieved many of last year's strategic initiatives. Despite the ongoing headwinds of the pandemic.

To recap the year.

We delivered another strong safety year with several units, having zero incidents from the field and in the office, we keep pushing the safety and wellness agenda, and our employees and their families greatly appreciate it.

We improved margins across the board as previously stated.

We refinanced our debt greatly reducing our cost of debt capital.

We commenced our acquisition strategy and executed our first acquisition in December the strategic acquisition allows us to expand into the industrial and manufacturing sectors and moved us into a new geographic region, and Tennessee and surrounding southern States.

The acquisition also provides us with access to a sophisticated pre fabrication capability in our OTR customer base that features strong recurring revenue.

We resolved one of our major claims, which Jamie will comment on later.

We step back up in 2021 after cutbacks in 2020 due to the uncertainties from the pandemic. These investments support the transformational o'dea our growth strategy.

We also started a new offering program management services, which are specifically focused on our health care market sector, along with a new office in Nashville, the Nexus of the for profit health care industry.

Well, we had a number of strong results from some of our business units one fell short of expectations. We address the underperforming units that Mike will comment later on those actions.

Okay.

With that I'll hand, this off to Jamie.

Thanks, Charlie our earnings press release, and our Form 10-K containing a detailed review of our financials.

That in mind and I'll focus my discussion on <unk>.

I'll start with gross margin.

During the fourth quarter, we realized an LDR margin at 28, 5%, which was slightly above <unk>, 25% to 28% range. We think is appropriate for modeling purposes.

Gross margin was down 30 basis points sequentially from the third quarter, and we attribute that to project and service mix.

As noted on prior calls it has been our expectation that an error margin, let me first bill Miller and that the range.

This is Nick in the <unk> segment shifts toward a greater contribution from midsized and large ODI projects.

This projects carried comparatively lower margin with maintenance contracts and time and material work.

<unk> was 16, 4% in the fourth quarter and 13% for the full year, which is well ahead of the 10, 5% to 11, 5% range. We have previously discussed.

The TCR gross margin in Q4 should not be extrapolated out as the quarter benefited from an ideal mix project cycle timing and the positive impact of the disputed claim that set up for $1 3 million above the amount that was carried on the book.

Something in Iran.

But in our GTS segment, we have referenced in the past.

You did claims on several projects were incurred delays and financial impacts due to others.

We continue to aggressively pursue the other outstanding dispute and the timing of reservation. On these claims is always a challenge. However on a positive note we recorded no new significant disputed claims in 2021.

Gross margin results for the full year for also positively impacted by our continued focus on project selection and the emphasis on profitability youre being more consistent performance.

As such our business continues to be best evaluated over a 12 month period or longer and our current thinking is that a gross margin range of 11% to 12% represents a conservative starting point for modeling energy segment.

Our SG&A expense for the fourth quarter was $18 8 million and $71 4 million for the fiscal year or 14, 6% of revenue.

Full year SG&A increased $7 8 million for the prior year.

Primarily to increases in stock compensation expense professional fees and travel and entertainment expenses consistent presuming our normal business operations.

The increase was also due to staffing backup critical function that were cut at the height of the pandemic. This includes marketing training and other administrative functions.

We also raised the bar in human resources in 2021 by recruiting a top tier HR executive to support the critical function of human capital, which is in short supply.

Also incurred professional fees in 2021 associated with the four four b stocks compliance and the acquisition of Jake Marshal in our fourth quarter.

For modeling purposes, keeping SG&A as a percentage of revenue around the same level is a reasonable way to look at it while they continue to grow our OTR segment.

Turning to the balance sheet and cash flow.

At December 31, our balance sheet continues to be strong we ended the year with cash of $14 5 million every day, our total outstanding debt amounts by $5 4 million from 2020.

We also had an additional borrowing capacity of $21 6 million through our line of credit.

Total cash balances for the year decreased $27 7 million of which $24 2 million from the uses of cash in operating activities.

Operating activities for the fourth quarter consumes $7 5 million of cash and if you recall $3 2 million of that was related to the December 31, cash payment and have the deferred payroll taxes from the cares Act and assigned back in 2020.

Also be required to pay the remaining half of the deferred payroll taxes by December 31 2022.

Another large driver for the fourth quarter cash usage, let's see increase in our net under billing position.

As we discussed on the Q3 call the timing of project life cycles, and the mix of project size any persons the OTR it <unk> impact cash into the positive and negative way, depending on where the projects are in their lifecycle.

At the end of 2020, we had an overbuild balance at $46 million, which had a very positive impact on cash at that time at.

At the end of 2021, we had an overbuild balance at $26 3 million the.

A reduction in the Overbill position during 2021, but the result of us being able to bill ahead with our customers from work that had yet to be performed at the end of 2020.

During 2021 that we incurred costs associated with these projects.

<unk> already build and received cash for those costs in the prior period. These cars alright, Jack to reduction of cash in the period that the purpose perform and expenses were paid.

As a result of these over billings coming down in 2021, our cash is reduced by $19 7 million.

As we shift our business to own airport and smaller project work, we don't expect to return to the higher overhead level as experienced in 2020.

However, we continue to stress the importance of cash culture within our organization and with possible try to negotiate favorable billing terms with our customers.

Additionally, our cash is also impacted by our under billings, we had under billings of $31 9 million at the end of 2020 and.

And 47 4 million at the end of 2021.

This increase in underbelly position is again impacted by the timing of project lifecycle.

Large portion of the increase in our under billing was the result of the lag time. It takes to convert claims and unapproved change order work that we have incurred cost side into billings.

As a result of this timing and the increase in under billing, we used cash of $15 5 million in 2021.

We expect the majority of our claims and unapproved change orders to convert to billings within one year. However, it does that require some form of dispute resolution may delay the timing of the conversion beyond one year.

We believe this lag time is standard practice and construction and is impacted by various factors and will continue to fluctuate.

Cash in financing activities provided net cash of $15 9 million. This included the equity raise in February 2021, they provided $22 8 million and that was offset by the pay down $5 4 million of our total debt.

But cash from investing activities used cash of $19 3 million. The usage was primarily due to the acquisition of Jake Marshall in the fourth quarter.

The Jake Marshall acquisition was funded by $10 million of our own cash on hand, and $10 million of term loan borrowings in the fourth quarter.

I'll now pass the call to Mike Thanks, Jamie and good morning, first I want to acknowledge all of the limbach employees for their outstanding work during the fourth quarter and all of last year.

We set ambitious goals, both financially and strategically and we accomplished the majority of those I'm very proud of our team members.

Supply chain issues continue to be at the forefront of many people's minds. So.

To provide some color on how we're reacting to those issues.

Our primary challenges with equipment deliveries in the OTR segment much of our work consist of installing equipment like Chillers and air handlers.

Lead times for Chillers have nearly doubled compared to what they were pre pandemic and.

In addition to extended lead times. There has also been an increase in mis delivery schedules.

Scheduling adjustments due to unforeseen delays in equipment deliveries results in reduced efficiency and costs and added cost and talking with our suppliers and manufacturers. We don't expect relief on production and delivery times until late 2022 and into early 2023.

We're responding to these market conditions by adding in varying levels of contingency into our scheduling.

Given the reality, we are seeing in the field. It makes sense to expect and plan for these disruptions, which we expect to slowly resolve over the course of the year. We are also urging our customers to make their equipment selection decisions as quickly as possible and where necessary, we're supporting customers in identifying and evaluating and equipment alternatives.

When I.

When I look at the ongoing impacts of this IC revenue shifting from the first half to the second half of the year.

One interesting benefits, we've realized from the supply chain issues at our time and material services have experienced a 44% increase year over year.

And that trend seems to be continuing into Q1 of 2022.

Because new equipment isn't immediately available owners are investing in their existing older equipment, but that's not always a long term solution old equipment, ultimately fails and that supports emergency repair and unplanned work.

2021 was our best year, yet for preventative maintenance contract sales, we added sales resources after backing off investments in 2020.

These resources tend to take a year to produce and we are now seeing those investments pay off.

We believe we are well positioned going into 2022 to see growth in the OTR segment due to increased sales resources intensified strategic sales focus on building owners, which is resulting in an expanding maintenance space.

From a backlog perspective, our sales for the fourth quarter picked up in both our <unk> segment as the year end OTR backlog was 98 million and <unk> backlog was $337 million.

We will comment later on the sales activity, but we believe supply and demand remains in our favor at this point, allowing us to remain selective in the work that we take on.

In terms of our going forward operational strategies, our focus is squarely on TCR project selection bottomline profitability and improving our cash flows we're continuing to focus on aggressively growing the OTR segment and maximize the return of our people in the <unk> segment.

As our recent results show this has been a successful strategy and we're going to continue to operate this way.

On the bright side, the labor picture has improved moving through the first quarter. The <unk> variant test dropped off considerably.

We were impacted by workers need to quarantine in Q4 and into January but the situation has improved through margin that through through February and into March.

Among the business units, we did have one important development to share that occurred subsequent to year end.

And February after thorough evaluation of the business unit, including local market conditions and outlook, we made a strategic decision to wind down operations in southern California, do it as strain on financial and human capital resources.

The performance of that business was inconsistent and consume cash from our other higher performing operations.

We have been reducing our footprint of that business over the last couple of years as we work to turn the business around but ultimately determined a full exit made the most sense.

We expect to be fully exited that business in 2022.

As of December 31, 2021, the southern California branch had less than $10 million of remaining backlog to perform.

Our other key focus is the integration of Jake margin went to <unk> <unk>.

Integration is proceeding well and the team is on target from a plan and timeline perspective.

Among the opportunities and capabilities, we're leveraging in both directions, our limbach shared services, such as design and engineering and Jake margins pre fabrication expertise.

As an example, we've identified a project in the Midwest, we're about to begin.

We believe we may be able to prefabricate over 70% of our paving assemblies at Jake Marshall.

Which would improve our operating margins on that project, let me hand, this over to Matt for comments on our acquisition activities.

Thanks, Mike So first let me take a moment to further comment Akshay Marshall and then I'll pivot to acquisition activity in the M&A environment more broadly.

First with respect to Jake Marshall because the business has really only been a part of the <unk> family now for a few months, but in that short time with the team in Chattanooga has just been terrific and we really couldnt have asked for a better partnership.

No shortage of learning opportunities going in both directions as Mike explained and there's also no shortage of business opportunities in that market, that's proven to be consistent with how we expected the year to develop coming out of the industrial cycle trough in.

In early 'twenty one.

Very busy there and the team continues to sell really good work and just the market environment and the Tennessee footprint generally is as strong as I think it's really ever been and we continue to feel really good about being there and the opportunities at that market presents just stepping back and looking at the M&A environment more broadly.

In general across the universe, we're seeing strong levels of activity in what I would describe as the prospecting phase the exploratory phase and also the nurturing phase.

Potential acquisition candidates and it feels like a really healthy but balanced market right now not everything that we're looking at is going to get to the finish line, but the volume of interesting businesses that we are exploring in speaking with.

This is really as strong as I can ever remember having experienced we are pretty picky acquirers and not every great business is going to turn out to be a great business for Limbaugh.

We like being busy and we certainly are at the moment.

We're pleased to be looking at businesses with this quality and then led by folks that you know really share the same core values as we do so expect to continue to be busy through the first and second quarters and into the back half of the year.

Thanks, Brad.

Well I am going to close with some comments on our sales activity and then we'll open it up for questions.

Recall that a year ago, there was a significant pause in activity as everyone was still feeling our way through how to operate in the pandemic.

Also activity thus far in 2022 is well above what we were seeing at this time last year and in response, we continue to evaluate needed sales resources in the markets that will offer the most attractive returns.

With a global supply chain issues, we've seen a nice increase in time and material work is aging equipment requires additional maintenance until supply chain issue was resolved we expect to see a strong contribution from time and material work, while the <unk> revenue was good news the supply chain matters continue to impact our ability to secure.

Kitty equipment change our projects, if a customer is locked into certain specified equivalent.

As of right now we see this getting.

Really initiatives into early 2023.

Looking at 2022, those four <unk> has been awarded several major building project contracts totaling approximately $95 million, which will be executed all wanted it to 2024, including a new pharmaceutical research and development facility in Austin and two central utility plants, one in Washington D C.

And Mark a Wildwood, Florida.

Also included in the total was $22 million of New award secured by Jake Marshall for various industrial and institutional projects that with Tennessee market.

Quite a nice start for the year.

And the <unk> segment, our maintenance base continues to grow.

As a reminder, those maintenance contracts can lead to other higher margin Cricketing small capital projects, which are often performed on a unit basis, along with emergency repairs, what I referred to investment to strategically grow our OTR segment, a key element is the maintenance contracts growth.

Turning to the <unk> segment, we're focused on those branches with demonstrated success delivering CCR work and we're looking to maximize their contributions to their growth in branches that don't meet the criteria for continued <unk> exposure working aggressively to reposition those assets, including our staff to pursue.

Higher margin.

For your model.

In closing 2021 was year, a major transformation program book and in many respects the culmination of a significant strategic shift for the company.

Process is not tour, we complete but much of the heavy lifting has been done is our third and fourth quarter bottom line results suggest.

We believe we entered 2022, well positioned but also very mindful of the macroeconomic and geopolitical issues at hand.

Throughout our prepared remarks, you've heard us talk about being smart deploying our assets in pursuit of the best returns both as with durable way of managing the business and also response to current market conditions.

The nonresidential construction industry at large is enjoying solid demand that we expect to continue.

Supply has yet to catch up with that demand. We're fortunate to have a diverse service offering a diverse geographic footprint and the diverse set of market sectors.

Our largest sector healthcare, which includes pharmaceutical and biotech laboratories and manufacturing facilities continues to present, a solid pipeline of projects, both large and small and now with our new program management services, we look to benefit with earlier engagement to expand our OTR relationships further upstream as capital projects or.

<unk>.

Among other verticals, we see continued demand for data centers is an area of opportunity.

Another highlight is our boarder entry into the industrial manufacturing sector with the J partial acquisition.

A substantial prospect list, especially with the automobile EV plants that are underway in Tennessee. We also remain bullish on the indoor agricultural sector.

I want to emphasize that with the corn supply chain challenges the sectors that I referenced and the opportunities they present or mainly centered on building backlog for 'twenty to 'twenty three 'twenty 'twenty four.

We look forward to 2022 and as Mike mentioned it appears the second half of the year will be stronger than the first half of the year due to the supply chain limitations, along with labor challenges.

Through what we experienced in 2021, and we intend to detail out formal financial guidance. When we issue our first quarter results in may.

With that we're available to take your questions.

Thank you if he would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

Let's start to if he would like to remove your question from the queue.

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the start he is.

Our first question is from Rob Brown with Lake Street Capital. Please proceed.

Good morning.

Good morning, Rob kind of on.

On the current environment just wanted to get a sense of are you seeing projects just shifting out but you maintained your projects.

The time it gets delayed a little bit or do you see projects are really do starts getting delayed or what's the impact of certain supply chain issues at this point.

Rob Thanks for the question.

It's interesting I think this partially relates to our shift to in general.

The biggest factor right now in our industry is definitely equipment, we had commodity type questions that we're 12 months to 18 months ago, but right now its equipment.

And the equipment lead times or nearly doubled what they were before that especially impacts on the owner direct work, which tends to be more.

Our mobile equipment, driven first a larger TCR work, which has equipment, but has an additional labor component that the owner direct work tends to be at less risk. So.

We're really closely watching equipment lead times.

I think at some point here as I mentioned, they will start to have some relief on those.

But I think from an owner direct percent on owner direct side. There is older equipment that has to be replaced so I think any deferred capital expenditures that happen. We're finally in a position now where those expenditures those building owners have to make those investments.

It's just a matter of getting the equipment in order for them to make those investments.

It's kind of the position that we're in right now larger projects, we continue to be very selective.

I think price certainty is from and from our perspective on larger TCR work is definitely on the forefront of a lot of building owner's minds. So completely equipment driven really at this point and we are really closely watching it.

That's great color. Thank you.

And then you talked about being selective on projects how is the margin profile of new projects looking at this point you feel like that margin can continue to improve our sort of on average or do you feel like it's stable.

Characteristic I guess, specifically around what you see here.

Yes look I think the federal reserves that we're presenting now or result of what we've done over the past couple of years or between risk management proper selection of projects higher quality jobs.

But we've been portion of the margins.

We are firm.

We continue to push and sort of issue to see Youll. The results over the next couple of years as we really educate our sales force to go forward Joe steel.

Increase our margin by 200 basis points give it a shot on the <unk> side, we're pretty much holding firm on certain levels of margin.

Of course, we always look at the risk and opportunity, but we are pushing hard to beat that range that we're providing for modeling purposes.

And.

We're winning work on a regular basis, where we're losing some work and some people get to supported over most of the project, but we're like no. That's fine, let's deploy our human capital on the projects, where we can get the greatest return.

That's the way we're looking at it right now is to just really Youll get the greatest return off of our great people that work for this company.

It's almost all realizing for our staff, where they've got all the job that maybe doesn't give us a good return and it becomes a tougher project as I said to our staff are pretty pumped up that we're holding for that we want them to get on healthy projects that are going to have really strong outcomes.

And yes, we lose one if that's okay. Let's go after the next one and quite frankly, the market is that busy we can be selective and thats what were doing.

Excellent. Thank you I'll turn it over.

Excellent.

As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question comes from Chip Moore with E. S. A N. Please proceed.

Hey, good morning, Thanks for taking the question guys.

Sure.

What does that asked about GTR margins, obviously very strong this quarter you called out some of the index and the <unk>.

James settlement that Ethan.

The state on that.

I will speak about at normalized margins for the quarter, but that you know for.

For the year, 13% very strong.

Talking about 11 to 12 now as a conservative starting point.

Some of the puts and takes there and potential to outperform.

Yes on the year of the claim resolution we were quite pleased we held firm.

We were hoping to get that resolved quicker, but we held our round and we.

We less that that.

That claim situation quite frankly in a very good position very proud of the people that negotiated as he did a great job.

And we've got several more that we're working on so that created some nice upside to the business slow down so that pushed the margin up.

But I think youll the modeling between 11% to 12%.

Increased slightly for our conservative view for previous modeling guidance.

But we think thats the proper way to look at it right now what is our quarters go by we will provide further updates on our progress, but when I look at again I'm going to reinforce this couple of years ago, we put the risk management processes in place for better project selection.

We're pushing the margins up we want to continue to execute and execute well.

Deliver improving margins, but I think from a modeling perspective should.

We think the 11% to 12% is the way to go right now.

Got it Thats helpful.

And if I shift to some of the supply chain impact I guess, particularly on the OTR side, you talked about that the lead times for killers.

Air handlers and things like this does that hold back sales materially.

At all this quarter and then as we think about sort of that second half waiting.

This year any color you can you can give us there would be helpful. Thanks, guys.

Sure. So first of all on sales with supply chain was kind of interesting right now.

We're using that to our advantage at pushing our customer base to make decisions in other words, if in the past you might have a customer take two or three or four months to make a decision on a piece of equipment and to go forward with a retrofit now we're early in that book.

We need to work this in at the pricing today, because the pricing will go up plus we don't know what's going to happen with your manufacturing could improve or could it get worse. So that's actually working in our favor to get decisions quicker.

Unfortunately, though if I look back.

Late half of Q3 into Q4, there was about $20 million of revenue of approximately $20 million of revenue of your higher margin work that got pushed forward because we couldnt get the equipment they missed their delivery dates and.

That was we're fortunate that we could have a much better year west Europe , but from a standpoint of.

None of that.

A continuation of the supply chain problems, we don't expect that to improve.

Until early May be late late this year or early 'twenty three we just hired a senior management calls with Johnson controls, who is a major equipment supplier for US last week, we are for their senior executives on the call. One person in particular was responsible for equipment production.

And he reinforced issue with anything cost Youre looking at a year to go anything cost them. So if we sell a project today that is custom piece of equipment is going to revenue next year.

As far as well.

So positive news, though he did share that they're starting to catch up with standard equipment, meaning off the shelf equipment, it's not back anywhere near what it was pre pandemic, but they're starting to see kind of a logjam ease a bit and they're starting to catch up with demand. So that was really positive news.

For us we're going to have to talk to our customer base that they have a need for equipment switch out or for that matter or the new construction.

We're going to try to convince them to go with the off the shelf.

<unk> as opposed to a cost per piece of equipment. Unfortunately in many cases with some of the sophisticated projects. We work on it has to be coastal.

But where we can.

Fortunately the alternative we're going to be doing that so again, it's a supply chain is kind of interesting we're taking advantage of it in certain respects also pushing our TM up as we mentioned in our prepared remarks.

We're pushing clients to make decisions quicker.

Unfortunately, some of that work is going to continue to lag as we wait for the equipment to come in.

Understood.

Maybe if I could sneak one last one in you did talk about take Marshall and some of the opportunities you're seeing there I know, it's early but I think you also called out.

Some of the building.

Auto sector are you actively bidding on some of those opportunities.

Well first of all Jason Marshall is very busy which is crazy and it was great to see them pick up.

$2 $22 million of their work here at the beginning of the year, which was just also we'll see.

The there was the Ford plant, that's being built down there that's a 6 billion dollar investment.

That's currently kind of in planning and what it <unk>.

Rolls into construction with areas that we'd be interested in we will look at it we'll price it appropriately if we can pick some of it also that'd be great.

Tennessee seems to be a hotspot of activity right now we're pretty excited about it whether it's things like the <unk> plant for Ford or all the ancillary plants that go around a big production facility like that.

There's going to be quite a bit of opportunity. So the answer is we're looking at it and if we could find the right opportunity right margins that we're looking for we will take it all.

Perfect Alright, thanks very much.

Thank you chip.

Our next question is from John Holmes.

Long Meadow investors. Please proceed.

Hi, everyone. Thanks for the call and congrats on the fourth quarter.

Yeah.

Charlie I'm just curious do you see the the GTR segment after.

Some of the rationalization in the last year.

That's purposeful decline for margin expansion.

Is that leveling out now or.

Do you think that will continue.

Uh huh.

The business sort of stays flat or grows a little bit going forward or is it.

You too.

Yeah mine too.

Great question, Joe and in fact, thank you for asking it.

When we look at the business first of all you got to understand our mission at this point is to keep growing that OTR piece.

As aggressively as we can I was very pleased with the sales were up 25% year on year for the <unk> segment.

The <unk> segment.

We're really looking at each business unit rationalizing their execution can they produce the margin till they produce the cash that we equaled two so in the branches that have been very successful over the years, whether it's building small or large scale projects, we're going to continue in the branches that we look at them.

And they say I can get some <unk> work, but it's at this margin is going to be maybe negative cash flow. We're just not doing it and work with one particular branch we looked at.

Last year, we just decided look just Cisco straight OTR Street or are you going to so much better and it didn't take long.

Conversations just work through the math and show the numbers and everybody agreed so we shifted those assets over the OTR, including the SG&A. So as we go forward I can see GCI in certain business units continuing to grow.

And the other units, we're going to continue to contract or maybe even stop there is no question about it OTR produces much better margin much better bottom line and positive cash flow. It's just much better Mike do you have anything else you'd like to share with them.

No I would agree I think when we look at the return in the gross profit margins our employees from a strategic strategic perspective, we're on a journey here to make sure that we're putting our people in a position to be most successful.

And I think when you step back a couple of years as we've talked about doing two we talked about the mix of the business in 'twenty. One it was really about making the necessary SG&A adds from a sales perspective and really in 'twenty one from.

From a sales focus we are focus on maintenance base, where our focus on introducing ourselves to new customers and we feel like we're positioned going into 'twenty. Two once we have already been introduced those customers to sell an expanded suite of services that as well. So this is a journey that we're on.

And as Charlie mentioned, the project selection and obviously trying to make sure. We have the greatest return and we have our people in the best position us, but ultimately what we're focused on John I want to tell a quick story and for everybody on the call that I think is really important because it demonstrates the imports.

The importance of <unk> as we put more importantly OTR.

So it's Disney and you've heard us talk about Disney of the past back in I think it was 2010, we had an opportunity to do.

The main trade right renovation.

And it was a small project $2 million ended up wrapping up at about 4 million dollar value. There were a lot of change orders you got paid well it all worked out well and I ended up having dinner with the head of Imagineering for Disney After that project and I was shocked to hear our prostate work, maybe I should've been so shocked but they were thrilled with what we did for.

The MRI don't have time to get into all the details, but we really did some creative stuff for them. So you fast forward today.

We're still working for imaginary whether it is the magic kingdom over that card.

What we're now working for the four divisions with a Disney that maintain all the facilities throughout their properties in Orlando. So it started off with a small little opportunity has now expanded into good sized JCR work.

Where we are working for general contractors with Disney is pretty much tell the GC.

Use or use our services.

And now it's grown into this great presence on the property for all of this other maintenance renovation retrofit type work.

And it's become a nice part of our business. So the reason we showed a story is that's the model. So JCR what's important about it is we get it involved on a project.

Make sure we understand who the owner is.

And then let's figure out how we can start leveraging that relationship with that older listen to them and start providing more and more services.

Much better margin much better cash flow. So again the whole the whole program is important TCR OTR.

I also have to emphasize that without <unk> certain business units.

There is so much opportunity in those markets, where we just go direct we don't need the GC, which is knocking on the doors of buildings getting ourselves introduced and developing those long term relationships and them quite frankly extremely pleased with what we've done over the past couple of years, it's really really starting to blossom.

Great Thanks for that color.

And then just following up on.

Cash flow Jami.

Obviously, the last two years, where one.

One year was well balanced with a positive last year to negative.

Going forward do you think cash flow will more closely approximate.

Yeah, the existing results other words EBITDA conversion.

Cash flow will be more a more normalized.

In 'twenty, two and going forward.

Yes, Thanks Ed.

I'm trying to give more color on that it really explaining the overburden accurate bill and so as Charlie mentioned from a risk perspective, and the shift to LDR as well as our shifting to OTR is not as volatile as they work toward that 50 50 split.

And anticipate that will be more neutral billings, so that helped us in the cash flow perspective, So I think a good way to look at the cash from my kind of our daily operation tenant business.

And using net income is an approximation and then from there again, we do have.

Payments that we need to make.

We also have our revolver as well that we can work off of it and we have nothing borrowed on our greenpoint.

So I think that's probably the best way and we're making that sets can we have that volatility right now between the billings and being overbuilt and elegant debt and kind of gets it gets you comfortable with where the cash is going to land.

Okay.

Alright, then.

Matt maybe you could just give us a little more color on the acquisition activity, what you know what.

What do you guys expect going forward.

So maybe wanted wanted to do deals a year.

What that means to the company if you can execute that over a long period of time.

And.

It really provided tremendous growth.

Boost to the.

This business.

Sure. So let me give you some color here and then I think you know as we move through the quarter and into the next call after Q1.

We'll provide some incremental comments on top of what I can pass along here, but yeah. Clearly I mean, we've said this before I think that Jake Marshall transaction in December is a really good prototypes with the type of business.

We're we're looking to pursue in the type of partnership we'd liked us to form.

In terms of location scale capability size that sort of thing.

So the criteria, which we did through before again businesses with revenue between probably $30 $75 million with.

With EBITDA margins in a call it 8% to 10% range. So these are transactions that have an enterprise value of roughly $15 million to $25 million I think that's a good digestible bite size for us over an 18 to 24 months, maybe 36 month period.

Businesses can be impactful to the bottom line.

They are large enough to make a difference if they look like many of our other branches, but there are also small enough for us to feel comfortable with the people with the operations with the diligence requirements and resources and with the ability to finance the transactions and you know you can get those transactions close so when I look at the environment right now.

And the opportunities in the market that fit that profile.

There are a lot of them, they're very interesting I think people are relieved to be largely on the other side of the pandemic I think the capital gains tax Voodoo that we went through last year has mitigated but has sort of sharp in people's perspectives and feelings about really getting ahead of succession planning and estate planning and I think.

That's good for the acquirer universe as we look at opportunities in the market, you're getting one or two of those deals done. This year next year I think is a you know a reasonable pace and a reasonable aspiration.

Again, we are trying to manage the internal resources the capital resources that we've got with the availability in the marketplace.

I'm one of the great I think sort of obvious discoveries hiding in plain sight from the Jake Marshall deal with just the breadth and depth of resources that we have at windfall.

<unk> worked with me to support me to be available for integration for extracting value out of the businesses that we partner with and we want to make sure that we sort of manage that balance given that a lot of those folks also have day jobs. So I know I'm thinking about the strategy right. Now is one to two deals this year bleeding into next year and you know if we've got the ability.

And the scale to ramp that up and add another transaction and get two to three deals that are that size, you know that would be great, but as I think about the near term environment in the near term horizon of call. It again 24 to 36 months I think the white pieces at least.

Probably plus or minus two deals a year at that scale.

Thank you so much.

Our next question is from George Melas with <unk>.

K each management. Please proceed.

Yeah.

Yeah.

I'm fairly new to the story, so I'm trying to understand the OTR segment grew roughly 10% this year, but I believe you said sales were up 25% the backlog is clearly.

Growing and has increased.

Very much.

Do you expect to see operating leverage on the OTR business in 2022 or are you going to continue this sort of strong investment.

But given the SG&A and on the sales side to keep the growth going long term.

Yeah, George Thanks for the question.

So.

Our view of <unk> right now, it's just a huge part of our future.

Again for all the right economic reasons, it's amazing what a dose for returns and cash production. So would you look at what we did this past year they are a little over 10% growth.

Did make a comment about supply chain about $20 million of revenue kind of pushed forward.

And that's one of the reasons why the backlog is actually much larger because we solve the burn that work.

But the sales themselves were up by 25%, which is a great indicator of the future and we're not going to back off so where we see the opportunity to continue to expand in our different marketplaces and you add staff to grow it we're going to do that the other parties on the acquisition front.

Ah you're with what Matt was just torture on our temporary downwards to look for businesses that have a reasonable representation of OTR revenue J Marshall did that for US I believe that was roughly 60% revenue was already are and so we'll continue to look for businesses that Q.

And to that mix our goal by 2025 is to see our mix of 50% <unk>, 50% OTR.

So does that help George yeah very much. Thank you and then just a quick question on <unk>.

On the contract assets and liability and the old billing and billing and is that something that as investors, we should be worried about and.

The fluctuations are so significant which is just part of the business and all the time.

It's sort of take care of itself.

So when you look at forward under billings.

That's an ongoing.

For the industry.

It's the nature of what we do and a lot of it has to do with timing George you could have one month's worth we're much better at excellent could be a bit worse. It depends upon kind of a cycle of a project.

Now, let's go back to the strategy. The strategy right now is to continue to be very selective on TCR, we feel that we're going to see much better outcomes. Both in terms of profit and cash flow, which means strong billings.

But we're also shifting this mix to OTR and OTR tends to have advice either neutral billing to a slight uptick on a regular basis. So as we continue the evolution of the business of transformation to more <unk>, we expected to smooth out and not have that.

Lumpiness, if you want to call it that.

Hope that helps George.

Okay. Okay very good thank you.

Our next question is from Kim Brown private Investor. Please proceed.

Good morning, guys, Hey, My question.

Guards to mine.

Winding down or shut it down in southern California.

To my knowledge that that relationship or do you have a relationship with Disney.

Correct.

No no we've done very little work at Anaheim, I think we did some arrowhead or change outs and we tried to get in there. We didnt have much success no. The majority of our work is all in good old Orlando.

Okay perfect. Thank you.

Yeah.

Thanks for the question Sean that concludes our question and answer session I would like to turn the call back over to management for closing comments.

Yeah.

I want to thank everybody for joining us. This morning, we're very proud of the quarter.

The year for that matter.

Look forward to speaking to you again, when we report our first quarter results in May if you have any additional questions. Please reach out to Matt cats, or our Investor relations firm the equity group other contact information can be found on our investor page at our website. Thank you again for your interest in La Buck.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Yes.

[music] today.

<unk>.

[music].

Okay.

Yes.

Yes.

[music].

Okay.

Yes.

Thank you.

Yes.

Yeah.

Yes.

Okay.

Yeah.

Yeah.

Okay.

Okay.

Okay.

Okay.

[music].

Okay.

Sure.

[music].